Jim Rogers: Lots of Growth Left for Agriculture Investors

Agricultural prices have been rallying for several years now, but Jim Rogers thinks there’s still room to grow.

The commodities investor said on Tuesday that he is still bullish on agriculture, calling it a great place for investors to be for the next two decades.

Prices of agricultural commodities are still relatively cheap compared to those of metals and energy, and the world is scrambling for arable farmlands to feed a growing population, Mr. Rogers told a packed audience at the Global AgInvesting conference, at the Waldorf-Astoria Hotel in New York.

However, how to ride on the agricultural bull run remains a tricky issue.

The most profitable way is to invest in commodity futures, but it is not a game for everyone given the extreme volatility and high capital requirements — “unless you know what you’re doing,” Mr. Rogers said in an interview with the Wall Street Journal on the sidelines of the conference.

Short of becoming a farmer, investors can benefit from buying a commodity index product, investing in currencies of agricultural nations and even getting a piece of farmland, Mr. Rogers said. As for individual commodities, investors might want to pick those that are off the most from the highs, he said.

Farmland has become a popular asset class among investors. By owning a piece of agricultural land, investors expect to see cash flows based on the proceeds. But it requires a big upfront investment and is not exactly liquid. To fill that void, many farmland investment companies are being set up to attract those who want a piece of the land but don’t want the hassle of hiring farmers, planting or irrigating. Dismissing the bubble talk surrounding farmland investment, Mr. Rogers said the investment idea is probably “in its third inning.” He is on the board of such a company, Genagro Ltd., which farms in Brazil.

Mr. Rogers knows firsthand that attracting investors to agriculture is not an easy task. A commodity vehicle launched in 2009 by Mr. Rogers and Macquarie, an Australian bank, to bet on China’s growing demand for agricultural products closed down after failing to attract enough investor interest, he said.

Mr. Rogers is one of the most highly-regarded commodities investors, and made a fortune when he co-founded the Quantum Fund with George Soros in 1973.

I agree that small and medium sized investors would have difficulty in entering what is usually a million dollar plus commitment to be active in owning farm or ranching properties. Modern farms operate on scale of economy in most cases. Many families actively involved in production agriculture also choose it for lifestyle issues as much as net return on their investment. As such, estate taxes, succession issues and encroaching suburban areas are pushing families to consider exiting farm businesses.

I have clients with working cattle ranches, cattle feedlots, dairies, irrigated farms and highly productive Midwest corn and soybean farm land, who have indicated an interest in selling. Many grain farms here in central Illinois have generated reliable incomes and the land has had more consistent performance than most equities. Some very large acreage farmland or ranches can be sold with existing leases in place, others can be active farm operations. Some properties are suitable for recreational use and vacation homes, others have development opportunities. These are all income producing properties with significant potential for appreciation. Global demands for increased food production will continue to be the next big trend in investing.

There are great places to own real estate in the world, but the USA offers a stable environment, good property rights laws, political and economic stability, and for many international investors, several state governments assist with obtaining resident visas for investors. There are tax efficient ways to structure holding companies to own US real estate for non-resident investors which can offer privacy and control.

If you are looking for project managers, we can assist you (as can many other professional firms) with complete planning, vendor coordination and operations management if necessary.

12:38 pm May 1, 2012

Vaughn W. Henry wrote :

The ownership of operating farms and ranches is not just an investment, but a lifestyle for many operators, and you're right, small investors aren't in a position to take advantage of these larger projects. . I have clients with working cattle ranches, cattle feedlots, dairies, irrigated farms and highly productive Midwest corn and soybean farm land, who have indicated an interest in selling. Here in Springfield, Illinois, farms are continuing to appreciate in value and are reliably producing modest income, year after year. Some very large acreage farmland or ranches can be sold with existing leases in place, others can be active farm operations. Some properties are suitable for recreational use and vacation homes, others have development opportunities. These are all income producing properties with significant potential for appreciation. Global demands for increased food production will continue to be the next big trend in investing.

There are great places to own real estate in the world, but the USA offers a stable environment, good property rights laws, political and economic stability, and for many international investors, several state governments assist with obtaining resident visas for investors. There are tax efficient ways to structure holding companies to own US real estate for non-resident investors which can offer privacy and control.

If you are looking for project managers, we (as can many others) can assist you with complete planning, vendor coordination and operations management if necessary. But no one farms or ranches successfully any more operating with small parcels, for most farms, it is an economy of scale issue.

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